"...This paper is for the information of the members of the Advisory Expert Group (AEG), regarding the currently accepted treatment of repurchase agreements, securities lending without cash collateral, gold loans, and gold swaps. The paper also sets out areas where work is continuing by the IMF Committee on Balance of Payments (Committee) and on which the Committee will provide further reports in due course..."

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8. Gold swaps are usually undertaken between monetary authorities. The gold is exchanged for foreign exchange deposits (or other reserve assets) with an agreement that the transaction be unwound at an agreed future date, at an agreed price. The monetary authority acquiring the foreign exchange will pay interest on the foreign exchange received. Gold swaps are typically undertaken when the cash-taking monetary authority has need of foreign exchange but does not wish to sell outright its gold holdings. In that manner, gold is a leveraging device. Gold swaps sometimes involve transactions where one of the parties is not a monetary authority (usually it is another depository corporation). Gold swaps between monetary authorities do not usually involve the payment of margin.

9. Gold loans or deposits are undertaken by monetary authorities to obtain a non-holding gain return on gold which otherwise earns none. The gold is “lent to” (or “deposited with”) a resident or nonresident financial institution (such as a bullion bank) or another party in the gold market with which the monetary authority has dealings and confidence and which is probably acting as an intermediary for a gold dealer or gold miner which has a temporary shortage of gold. The intermediary will, in turn, “lend” the gold to the dealer or miner – in effect, a change in ownership of nonmonetary gold then occurs. In return, the borrower may provide the monetary authorities with high quality collateral, usually securities (frequently, but not necessarily, substantially in excess of the value of the gold provided) but not cash, and will pay a “fee” thereby increasing the return from holding gold. The collateral does not change ownership and is treated as an off-balance sheet holding of the monetary authority.

10. The nature of gold swaps and gold loans/deposits is similar to that of repos and securities lending in that the market risk toward the underlying asset (in this case, gold) remains with the original holder: if gold prices increase, the volume of gold returned is the same as that swapped, while the same value of the foreign exchange (as defined at the time of the initiation of the swap, plus any accrued interest) is returned.

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"...Statistical treatment
11. The statistical implications of gold swaps and gold loans/deposits are complex and have not been fully worked through. Work is still being undertaken by the Committee to address the implications. In particular, gold may be double counted with either a gold swap or gold loan/deposit if the party acquiring the gold were to on-sell it outright, because both the original owner and the outright purchaser would report ownership of the gold. In addition, there is the difficulty of having monetary gold being used in these transactions for purposes other than for reserve assets, and how (de)monetization would apply if the gold is sold for industrial purposes. Moreover, there is a proposal, as part of the revision to BPM5 and the update of 1993 SNA, to treat (some) nonmonetary gold as a financial asset, rather than a commodity, and the outcome of that discussion may have further implications on the treatment of gold swaps and gold loans/deposits. Finally, how the “fee” for gold swaps and gold loans/deposits should be treated has yet to be resolved. All these matters are being considered by the Committee and a report will be taken to the AEG in due course."

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8. Gold swaps are usually undertaken between monetary authorities. The gold is exchanged for foreign exchange deposits (or other reserve assets) with an agreement that the transaction be unwound at an agreed future date, at an agreed price. The monetary authority acquiring the foreign exchange will pay interest on the foreign exchange received. Gold swaps are typically undertaken when the cash-taking monetary authority has need of foreign exchange but does not wish to sell outright its gold holdings. In that manner, gold is a leveraging device. Gold swaps sometimes involve transactions where one of the parties is not a monetary authority (usually it is another depository corporation). Gold swaps between monetary authorities do not usually involve the payment of margin.

- I am now thinking about the "swaps" the Fed arranged with various other CBs at the height of the crisis. I am wondering... did they ever say that the Fed swapped dollars for other currencies, or perhaps it was actually gold they swapped dollars for?

- It clearly says that monetary authorities don't typically charge each other a margin, which implies to me non-monetary authorities have to pay margin to play.

11. The statistical implications of gold swaps and gold loans/deposits are complex and have not beenfully worked through. Work is still being undertaken by the Committee to address the implications. Inparticular, gold may be double counted with either a gold swap or gold loan/deposit if the party acquiringthe gold were to on-sell it outright, because both the original owner and the outright purchaser wouldreport ownership of the gold. In addition, there is the difficulty of having monetary gold being used inthese transactions for purposes other than for reserve assets, and how (de)monetization would apply if thegold is sold for industrial purposes. Moreover, there is a proposal, as part of the revision to BPM5 and theupdate of 1993 SNA, to treat (some) nonmonetary gold as a financial asset, rather than a commodity, andthe outcome of that discussion may have further implications on the treatment of gold swaps and goldloans/deposits. Finally, how the “fee” for gold swaps and gold loans/deposits should be treated has yet tobe resolved. All these matters are being considered by the Committee and a report will be taken to theAEG in due course.